When buying or selling a home, the term “escrow” frequently comes up, but for many, its meaning and importance in the real estate process remain unclear. So let’s break down:
What is escrow?
How does escrow work in a real estate transaction?
What is Escrow in Real Estate?
Escrow is a neutral third-party (i.e. an escrow agent or title company) that holds funds and documents until all conditions of a real estate transaction are met. The purpose of escrow is to protect both the buyer and the seller by ensuring that neither party is at a disadvantage before the sale is finalized.
You can think of escrow agents as a referee in real estate transactions; making sure both sides play fair.
How Escrow Works in Real Estate
Opening Escrow
Once a seller accepts a buyer’s offer, both parties sign a purchase agreement, and the buyer deposits earnest money into an escrow account (typically managed by an escrow agent at a title company)
Meeting Contingencies
Contingencies are the conditions that must be met before closing
Common contingencies can include, but are not limited to:
Financing: protects the buyer if they are not able to secure financing for the purchase
Appraisal: ensures the home is valued at the agreed-upon price
Home Inspection: allows the buyer to back out if major issues are found
Title Search: involves examining public records to ensure that the property’s title is clear of legal issues and liens
Final Walk-through & Closing
Once all contingencies are satisfied, the buyer does a final walk-through to ensure the home is in the expected condition
The escrow company then facilitates the closing process, ensuring all payments, title transfers, and legal paperwork are completed
Finally, the escrow agent releases funds to the seller, and the buyer receives the keys to their new home
Final Thoughts
Escrow is like the unsung hero of home buying, keeping everything on track. But when it gets derailed, it can be a real headache.
The usual culprits? Financing snags, inspection surprises, and appraisal mismatches.
The fix? A savvy real estate agent and a solid escrow company. A bit of prep work, and you’re on your way to closing the deal and getting those dream home keys.
The home inspection is the prenup of real estate. It’s a thorough evaluation of a property’s condition empowering buyers to make informed decisions about their future property.
A home appraisal is a professional estimate of a property’s value, crucial for buyers, sellers, and lenders in real estate transactions. It ensures fair pricing, protects against fraud, and affects…
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